Dividend Growth Fund—Common Sense for an Uncommon Market

During uncertain markets, experience goes a long way. In his nine years as portfolio manager of the Dividend Growth Fund, Tom Huber has experienced a full range of market ups and downs. And through them all, his long-term management approach remains focused on investing in high-quality companies that pay dividends and grow them over time.

The fund's risk-conscious buy-and-hold strategy is attractive to investors who want to invest in stocks and manage their overall risk at the same time. "The Dividend Growth Fund is an investment you can own—for the long term—without having to worry about getting in and out of it as markets change," notes Huber. "Buying companies that offer stable dividends when they are trading at a discount can be an effective method of building wealth over time." While a company’s stock price can fluctuate up or down in response to any number of factors, consistent dividend payments can be a critical element of a stock’s total return.

A key advantage of Huber's approach is his "common sense strategy" on evaluating good businesses. The fund invests in high-quality companies, which Huber defines as established firms with durable business models and substantial free cash flow. He also looks for companies that demonstrate a track record of consistently growing dividends year over year, because such companies provide investors with a measure of positive returns in any investment climate.

Huber discusses his approach to managing the Dividend Growth Fund. Watch the video.

Traditionally, strong dividend-paying companies have been concentrated in defensive sectors of the market, such as consumer staples, health care, and financials. Recently though, new opportunities have arisen in more cyclical sectors, such as technology.

Over the long run, targeting stocks that show value and can deliver dividend growth is more important to Huber than staying within a given set of sectors. He has long been drawn to sectors or industries that are out of favor, making their valuations particularly attractive. Over the past decade, the portfolio has also emphasized market segments from smaller-cap real estate investment trusts to dividend-paying large-cap growth stocks.

Given the market recovery, Huber has sharpened his focus on defensive holdings that may have trailed the market leaders and have relatively attractive valuations. One area where he sees considerable opportunity is the battered financials sector. Of those financial firms that have survived, long-term prospects remain strong. Huber also notes that many companies in this sector have been "working diligently to restore or increase dividends as appropriate."

Huber shares his insight on the various opportunities he sees in out of favor sectors. Watch the video.

An emphasis on corporate quality may become increasingly important as a result of the U.S. struggle towards economic recovery. Huber feels that recent gains in corporate earnings, and the market rally that has ensued, can be attributed largely to cost containment and inventory reduction efforts, rather than increased revenues. However, it is difficult for a company to cut its way to prosperity. Moving forward, Huber will look to companies that continue to control costs effectively but that also enjoy reasonable revenue growth. The Dividend Growth Fund will continue to reflect a collection of high-quality, larger-cap, primarily U.S.-based companies with strong earnings and cash flows, that offer a combination of capital appreciation and income growth to ensure stability of returns.